Cape Town Residential Rentals PlateauSeptember 6, 2018

After about a decade of a boom, (or in the opinion of others, a speculative bubble) Cape Town rental prices are facing their first decline. Rentals are stagnating and in some areas even decreasing, thus also impacting residential sale prices.

Although many speculated that the drought may decrease property prices in Cape Town, the drought has actually done very little in terms of directly lowering property prices. The main culprit is actually oversupply of properties on the market. A few years back, Cape Town faced a housing shortage for middle to high income properties (the affordable housing shortage still continues) and demand increased, and so did property rentals; exponentially so. Due to the nature of the property industry, information regards how much new supply was actually needed was not available, and so developers all saw the same opportunity in the market and all decided to develop. The result is an oversupply of new properties to the market, and increased vacancies and “to let” signs.

Where the drought has affected the property market is in the decreased tourists visiting Cape Town. This has led to many accommodations which used to be let out to tourists for short-term rentals now also entering the long-term rental market. The result-even more supply of rental accommodation on the market, and thus lower rentals and negotiating power going to tenants. Landlords are failing to achieve the 8-10% rental escalations that Cape Town is notoriously known for.

Cape Town is currently in a dip in the property cycle, and the decrease in property prices is expected to continue for about another two years or so. There are still even more residential developments that have just been approved and are not even on the market yet, so even more supply is on the way. So for those looking to become homeowners (to occupy yourselves), this may be a great time to head to the market and start looking around as buyers currently hold quite a lot of negotiating power.